One man's journey to financial independence.

Wait just a second! How did you have rental #3 if you didn’t buy another rental property you may ask and what is 3b? Well, ok so here’s what happened.

I decided to call it quits with the restaurant. The building is wonderful but I just decided the restaurant business wasn’t for me. So I sold the business but still retained the building. The tenant I sold the business to didn’t work out and long story short, defaulted on their 3-year lease after just 3 months. Yes, I had to evict them, there’s a first time for everything.

In the meantime I’ve rented the upstairs which is where I was living before I purchased a new home in another town about 30 minutes away. My wife and I are now in a regular home which I think will be better to raise a child in. Anyways, the upstairs is a wonderful 2,000 sq ft , 2 bedrooms 2 1/2 bath property with all real hardwood floors and awesome updates, granite counters, crown molding and custom woodwork throughout, etc. I listed the property for lease on Zillow and had 3 people that wanted it within a week. I realize I may not have asked enough for the property. I have leased the upstairs of the building for $1,200/month on a 1-year lease. The bottom floor is where the restaurant was housed and is currently for lease. I have a few good prospects and hope I can close one before the new year. I need to get this thing cash flowing!

There’s lots of NEW coming in 2018. New house, new job, new income sources, plans for aggressively growing my passive income stream!

I’m in the hole $1,489.87 right now. I plan to have a tenant in the building by January at a rent of $2,000/mo where it’s at least cash flowing. It’s not a high cash flowing property so I currently have the building listed for sale.

The picture is from a trip to Thailand in 2016. I noticed one of the original bloggers I followed had moved to Chiang Mai and figured I’d post a Thailand pic. I’m obviously supporting the local beer!

It was on the market for two months. I originally had it listed for $1200 for a month and then I dropped to $1100. I worked out a deal with my new tenant for $1000/month for a 6 month lease. I would rather collect less rent and have better tenants.

I’ll update my Real Estate page with the new information. I’m currently earning $637.93/mo after all expenses from two rental properties.

I mentioned in my previous two articles about buying a third rental property and closing on April 4th, 2014. I posted The Final Numbers where I computed a cash-on-cash return of over 8% which I consider pretty darn good.

I ended up spending about $1000 in repairs/landscaping plus replaced carpet in one room. I had the house on the market in less than a week after closing. My rental estimate was $1300 but I started the price at $1350. After low traffic for a couple of days I decided to go ahead and lower the price right away to $1300. Within two days from doing that, I had multiple interested applicants.

I received 3 applications that first weekend and my realtor started turning down potential renters at that point. Each applicant paid to have their credit and background ran. The first applicant failed the background and credit check. They had very poor credit and lots of evictions. That was an immediate, No. The next two applicants both had clear backgrounds. The second one had decent credit and scored an 84/100 on the report my agent ran. The third applicant was a family with good credit and scored a 96/100. Not only that but they found the listing from the internet so they didn’t have an agent, which means I don’t have to pay another realtor. They scored the highest and I wouldn’t be required to pay the typical 40% of first month’s rent to another realtor. So I obviously chose option #3. The new tenants move in on the 9th.

So just a little over one week from closing, I had secured tenants on my property at the exact rental estimate of $1300. This was a major relief. The whole process went extremely smooth. It went so smooth that I’m considering a 4th rental by the end of the year. This would obviously cut into the amount I’m putting in DG stocks but it will be a tough decision. I’ll be saving some money and watching the market.

More stock or more rentals? I love the compliment that real estate adds to my dividend growth portfolio. I’ll take a little of both.

It was 2008, about a year before the financial meltdown which we now call The Great Recession. I owned just one property at the time (currently rental house #1) as my primary residence. I had owned this house for approximately 2 years. I had also taken advantage of easy financing by only making a down payment of 5% on a 205k property. The great part was I didn’t have to come up with a lot of cash to buy my first house but I had a higher monthly payment.

This was the year I decided to quit my day job and start my own business. I mentioned a little about this on my ABOUT ME page. My total mortgage payment with taxes, insurance and PMI was $1920. My interest rate was 6.5%.

I was living with my soon-to-be wife at the time. We were in a suburb just outside of the city. Her commute downtown with traffic was an hour each way. So what we decided to do was look for a cheaper property that was closer to downtown and try to rent out our house.

We first found a location that was much closer for her and actually slightly closer for me. This area was a great compromise and there were many affordable condos here.

Next we started looking at viewing these condos that were in our new price range of less than $120k. We ended up finding one that was about 750 sq. ft. This would be a big change from being used to about 2200 sq. ft. but we both agreed we could make it work. My wife took advantage of the first-time homebuyer credit as well of about $8,000. We were able to purchase the condo through the FHA with a minimal amount down at an interest rate of 5%. We figured our new total monthly payment would be right at $1050 per month.

We then had our realtor pull rent figures in the neighborhood our house was in. They averaged about $1600/month which is what we ended up getting.

As you can see, these numbers look pretty good. Not only could we save $550/month but we were investing into another property that would eventually become our condo rental. My wife was also happy about her new commute time of less than 30 minutes! It even cut a few minutes off of my commute time as well.

So we downsized, sold a lot of our furniture, and I began finding ways to spend less. The $550/month savings at that time was huge when I wasn’t making any money yet, not to mention the gas savings that we now had with the shorter commutes. This point in time was a giant turning point in my life. I was now working for myself and learning how to live on less than ever before.

2014

Now fast forward 6 years and the house is still a rental. It was refinanced a couple years ago and is currently getting $1700/mo in rent. The house has also had some nice appreciation which is just a bonus if I ever sold. The Condo is also a rental, currently at $1000/mo. You can find details of these plus my new Rental #3 on my REAL ESTATE page.

In the end, I’m extremely happy with our decision. It was truly life-changing!

I’ve mentioned previously that I made an offer on a third rental property and ran some numbers. I’m closing today on the property and have received the final HUD statement. I’d like to compare the final numbers to my estimates.

I found out there were a few repairs that needed to be made. The seller agreed to give me a $2000 credit towards closing costs. I also received an estimate from a contractor for $1000 to fix these items and there’s a few I can fix. So I should get an extra $1000 when everything is done.My closing costs are $3111.14, subtracting the $1000 gives me $2111.14 in total closing costs.My new cash on cash return is: 8.19%.

So these numbers are a little better than expected if I can get at least $1300 for rent. This is mainly due to the seller offering to pay $2k towards repairs and already having a recent survey. The other good thing is that the house is practically move-in ready. It needs one move-out cleaning and a little bit of painting. The previous owner is leaving the washer/dryer plus fridge which are all still in great condition. The seller is also paying for a year of home warranty coverage. The value of this was $475.

I don’t see myself having trouble renting this place quickly. I’m meeting a painter and contractor that will be doing the repairs tomorrow and the work should be finished by Sunday. I plan to list the property on Monday morning.

My plan is still to have half my investments in equities and the other half in real estate. One of my goals this year was to add a third rental which is now done. I will be sure and post more updates as they happen.

I posted about my first full month of electricity after installing solar panels here. It was sort of long and difficult to understand so I’ll make it much simpler this month.

I’ve now got some more information and plan to track my actual spending versus my projections before I had solar.

Previously, I thought I was being charged two account fees of $10 each. Well, that was only because of a pro-rated month where I partly had an electricity bill from solar and another regular bill. I spoke to the utility solar adviser and he credited me the $10 I was charged last month.

I just received my new bill for my second month, I’ll call it February (even though it doesn’t start and end during the same month).

Without further ado, he’s a visual representation of this information:

The contribution % is basically the percentage of my total bill that is covered. Yes, it’s close to 100%!

The bad news is that my credit for production has been a little lower than initial projections, mainly due to a drop in the price per kWh that I mentioned in my last article.

The good news is that with the new monitoring system, I’m able to better track my usage. With a combination of not wasting as much energy and using more energy efficient lighting (LED’s), I have been able to drastically lower my bill so far. I picked up several LED lights from Amazon.com.

The green line above is the percentage of my entire bill that was covered by my solar credit. For the first month this was at 89.4% and this past month was 93.5%.

It’s sure nice to have an electric bill that costs about $5 for the entire month!

Here’s a chart of my actual solar usage versus the projections (based off last year’s usage).

I plan to continue tracking this to see what happens the rest of the year.

My current tenants were having a little bit of a tough time the last few months. The husband lost his job and they couldn’t afford an increase in their rent. I decided to allow them to keep the rent the same if they would sign another year lease. They have been good about paying rent on time and I’ve had no issues at all with them. The only item I really had to fix last year was a broken dishwasher, I ended up just replacing it.

I already had a renewal form from my agent last time which is just an amendment of the contract. It was really simple to fill this out and email to the tenants. They just emailed it back this week and have extended until April 2015.

Here’s what it looks like:

So I’ll continue collecting $1700/month for another full year without having to worry about any vacancy issues. The rental market in Austin is strong, I probably could have put the house back on the market for lease and charged $1800. However, I’d risk having to find tenants to start at the beginning of May and also have to pay 40% of the first month’s rent to my agent. I don’t think it’s worth the hassle.

You can continue to find all of my real estate posts by following my real estate label.

No, we didn’t buy a giant high-rise building! It’s a one-story office condo with plenty of room for us though.

I mentioned previously that another purchase was in the works late last year. Well, we ended up closing at the end of December on an office building to move my existing business into. This purchase was made using my business account and shared with my other two business partners.

Originally, I had looked at leasing a larger office space to satisfy our needs. Our current space is only about 1600 sq ft and we needed a larger space to grow into. We looked at a couple of spaces that were around 2000 sq ft and they ranged in price from $20-$24/sqft triple net. This is a monthly cost of $3333-$4000/month. $4000 happens to be double the price we’re currently paying and we would now have to pay our own utility bills and internet usage costs. So we were about to incur about $2500 in additional monthly costs to get into a much nicer but just slightly larger space.

If you’re not familiar with triple net (NNN), basically it means the tenant is responsible for taxes, insurance and maintenance on the building. This is fairly typical in commercial real estate and much be accounted for when looking at monthly costs.

I then had the idea of possibly buying our own space. I crunched some numbers and partly had my business partners sold on the idea. The next problem would be finding a suitable space in our price range. We still wanted our P&I costs of the purchase after down payment to be around $4000/mo or lower. After looking at a few properties, what we discovered was that we could get a much larger space for the same price as renting!

The main reasons for the purchase:

1.) Elimination of rent

2.) We needed a larger space

3.) Investment opportunity

4.) No landlord to report to

5.) CHEAPER!

6.) Kegerator! Yes, we will have a kegerator in our kitchen!

So we settled on an office condo “shell” unit. This means the inside hasn’t been built out yet. That’s ok because we could include our build-out costs into the financing from the bank. The unit is a stand-alone unit with approximately 3300 sq. ft. It was built in 2007 along with about 6 other units in the sub-division. Most of the units have been sold now and contain medical businesses. We would be one of the only tenants not in the medical space there.

We then made an offer and went back and forth with the seller before settling on a price, approximately $680,000. We only needed to wait on the appraisal to come in at the value we offered.

The problem with a commercial appraisal is that it is about 10 times the cost of a residential appraisal! Yes, we had to spend over $3500 on an appraisal that was non-refundable! So, in addition to our earnest money of $10k on the line, we had an additional $3500 plus options money of $100, for a $13,600 investment already tied up. This did make me a little nervous.

When we finally received the appraisal, it came in about $15k under the purchase price. Thankfully, the seller was willing to reduce the price down to meet the appraised price. Otherwise, we’d have to fork over an additional $15k down payment.

Now we just needed to secure financing. This was the next biggest hurdle.

Here’s what our bank wanted initially:

1.Interim financial statement for Business as of 9/30/13, if available

2.Current accounts receivable and accounts payable agings

3.Current business debt schedule – form attached

4.Three years personal tax returns for all members

5.Copy of the executed contract

Once this was done we had some rates and terms proposed to us. Basically with a commercial purchase, most banks won’t let you have a term over 20 years. While this means you’ll pay less in interest, it significantly increases your monthly P&I payments. This is also different from residential loans where you can easily get a 30-year fixed rate.

There’s also a lot of loans with pre-payment penalties and balloons in commercial. A 20-year fixed rate with a 10-year balloon means that after 10 years, the total note is due. You either have to come up with the entire amount left or you need to refinance.

I’m really not a fan of balloons. Image what could happen in the midst of another financial meltdown. If our balloon ended in another financial crisis, I might not get approved for the remaining money. So the balloon option was out of question.

We decided on a 20-year fixed rate of 4% with a 5-year adjustment period based on rates at the Federal Home Loan Bank of Dallas. This is sort of like an ARM in residential. Our plans are to pay off this loan within 5 years so we don’t have to deal with our rate going up.

Next the bank needed the following:

1.Proof of insurance on the project – not sure if your contractor is going to carry builder’s risk or if your hazard policy will cover it. You might want to go ahead and start working on this as sometimes it takes while.

2.Information on the contractor such as previous experience, contact info. List of references and/or trade accounts

3.We will need a proposed lease between your business and the new LLC – you might want to get your attorney to start working on this also.

4.Corporate docs for your company as they are proposed as a guarantor. Who will sign on behalf of that entity and their title?

5.Please provide us a copy of either your bank statements or account analysis statements and we will prepare a depository bid for your company. These statements will allow us to accurately bid the amount of deposits/transactions in your account each month.

6.Please complete the attached worksheet for all three proposed signors on the accounts/loan and provide a copy of each valid driver’s license.

7.Please double check that your company is in good standing with Texas Sec of State. We will require this to be clear.

What we did was start a new LLC as a holding company for the purchase. My current company would then pay rent to the new LLC which we also owned. This was advised by our accountant for not only tax purposes but for easily separating the two businesses.

Once the rest of the above was satisfied we were basically clear to close on the loan, this happened at the end of December.

I mentioned that we wanted about 2000 square feet for ourselves. Well our new space has approximately 3300 square feet. We decided to partition the building into two main areas with common break rooms and bathrooms. This means we have 1000 square feet of rental space that we plan to lease out. Based on rates in the area, this could bring in up to $2000/month.

After all bills and renting out the other section, our estimated costs are about $2500/month. This includes utilities. This is also much cheaper than the $4000/month we were looking at for rent!

So not only have we made an investment in commercial real estate in the booming Austin economy, but we should lower our expenses in the process.

We’ve now finished the architecture drawings and have submitted our proposal to the city for construction. We’ve had to meet with the architect and construction company multiple times in order to get the place designed how we want with our budget.

Construction should start shortly and we’re planning on moving in sometime in late May or beginning of June.

This should catch you up on where we are at currently. I’m sure I’ll post another update once finished or close to finished.

You can find all of my real estate posts by clicking on my real estate label.

I’ve mentioned briefly in some of my monthly updates about looking for a third rental property this year. I actually have been looking at a few properties each week. There was a property I was interested in two weeks ago but the property received multiple offers on the first day it was listed. Needless to say, I didn’t have a chance on that one. Yes, the market here is really hot. Austin isn’t the fasting growing city in the country for nothing. Technically, this property isn’t in Austin but it’s just twenty minutes outside of the city. It’s still a fast growing area.

So last Friday I found another property I liked and made an offer right away. I actually offered $200 over ask since I knew the housing inventory is low and there are lots of buyers. There were other offers on the property but I found out Monday that my offer was accepted.

The house is fairly new (built in 2002) and has had some recent updates including what looks like a new deck and iron/wood fence in the back and laminate flooring inside. It also has privacy since it’s basically in a cul-de-sac and backs up to a field.

So these numbers aren’t too bad if I can get at least $1300 for rent. The good thing is that the house is practically move-in ready. It needs one move-out cleaning. The previous owner is leaving the washer/dryer plus fridge which are all still in great condition. I don’t see myself having trouble renting this place quickly. I will look to close by the end of March if all goes well including inspection and appraisal.

My plan is still to have half my investments in equities and the other half in real estate. One of my goals this year was to add a third rental. I will be sure and post more updates as they happen.

So most of you know I installed solar panels last year after deciding solar was a good investment. They were finally on the grid by the end of December. So I’m finally able to report some production numbers. Unfortunately, my first bill was pro-rated due to my billing cycle so my first bill was about $12.00. I just received my new bill for my first full month of production and here are the results below.

Here’s what my monitoring system reported:

Since the end of December my system has produced 1.24 MWh or 1,240 KWh of electricity. All of January I produced 810kWh and consumed 1070 kWh (1.07MWh) of electricity. There’s a little bit of interference in the line so these numbers aren’t totally accurate. I’ll have to get the exact numbers on my meter. One of the best things about this monitoring system though is that it’s in real time. I’ve been going through my house and replacing all the high usage light bulbs with LED bulbs. I believe I’ll be able to cut significantly my actual usage over last year. This was also one of my Goals for 2014.

Here’s the actual reading on my digital meter tied to the grid when I checked at the end of January:

847 DE (this means the city DElivered 347 kWh of electricty to me)631 RE (this means I REturned 631 kWh of electricty back to the city)216 NET (this one is obvious)

Here’s the actual reading on my digital solar meter:990 – (this is the total amount of kWh that I produced)

I actually beat my original projections in terms of production but my credits were lower than projected so the value of my energy output was lower than expected.

Here’s my original proposal which I’ll be checking to see how I do this year:

So here’s my understanding of how it works. The electric usage I have while I’m generating solar energy gets returned to the city. If I am producing more than I’m using, the extra energy is also sent to the city but the city buys it from me.

One negative I didn’t know is that the city comes up with the “value of solar” per an algorithm they developed. They actually changed this algorithm to start 2014 so the value they pay per kWh actually went down. Any credits roll over to the next month but reset at the end of the calendar year.

Here’s a look at what the city has paid the last few years:

2014 – 10.7 cents/KWh2013 – 12.8 cents/KWh2012 – 12.8 cents/KWh

Based on the current algorithm, this is what they would have paid in the past:

So this is a bummer to know that they can drop your credits from year to year. They are currently the lowest they have been since 2006.

Here’s the current rate structure before additional add-on fees (it’s a tiered system sort of like our tax system):

I just received my new bill which is for the period 01/08-02/06.

Instead of combining my solar bill with my water bill, it’s now a new bill and a new account. The city charges $10 per account. My electric was previously together on the same bill with my water. If it wasn’t for this new account I’d only have a bill of $0.05. I called and the city gave me some bullshit excuse so it’s just basically another way for them to collect money.

I’m still not sure how they came up with the Whole House Consumption of 964. I am waiting on a call back about this and I’ll be able to provide more clarity next month.

So this is a little bit of a learning process but I look forward to seeing how the numbers match up with my projections. Overall, I’m still happy with the panels and it’s opened up my eyes to my energy consumption with the monitoring system.

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Disclaimer

I am not a licensed financial professional. I created this site to be informative and entertaining. No purchases I make are recommendations to buy those particular equities. I'm not liable by any party for losses you might incur. All investments are subject to losing money and you should consult a financial professional before making any investment decisions.